New Economic Data points to Stagflation
The US Labor Market is cooling with the unemployment rate rising to 3.9% from 3.7%, and December and January payrolls revised lower by 167,000. Inflation ticked up with prices rising by 3.2% over the last year, which slightly outpaced forecasts of 3.1%. The Soft Landing narrative hedged upon the continuation of the window where both unemployment and inflation were low, which is obviously not sustainable. The Phillips Curve is wrong in assuming that inflation is mostly driven by higher wages and that recessions are always deflationary. While the US may avoid a technical recession this year, due to mass migration and government debt growing the GDP, the economy is in for anything but a Soft Landing. The most likely scenario is 1970’s stagflation combined with a major financial crash like 08’.
Conjecture: For a little while longer, the U.S.A. can maintain its GDP levels through massive debt issuance, now at ~$850Billion per quarter. But this borrowing comes at the expense of other nations prosperity. Eventually the negative impacts outside the U.S. will take down the global financial system and blow back to the U.S.A. We see some indirect impacts already: mass migration into the U.S.A is partly the result of an artificially elevated U.S.A. GDP and lots of job openings here?
Or do I have it wrong? Maybe the U.S. has no choice now but to create more dollars (through debt issuance), to keep the established global financial system funded and delay a financial crisis and global recession / depression. At this point, it seems that even a modest reduction in U.S. government borrowing / spending would trigger a sharp downturn.